Fed’s Bold Move: What the Rate Cut Means for the Economy and the Market

September 18, 2024

Today, the Federal Reserve made a significant move by cutting interest rates by 0.50 percentage points, bringing the federal funds rate down to a range of 4.75% to 5%. This decision marks the first rate cut since 2020 and signals a shift in the Fed’s approach as it aims to balance economic growth with inflation control.

Understanding the Fed’s Decision

The Fed’s rate cut is a response to several economic indicators suggesting a slowdown. Despite recent efforts to curb inflation, the labor market has shown signs of weakening, and economic growth has been tepid. By lowering interest rates, the Fed aims to stimulate borrowing and spending, which can help boost economic activity.

Soft Landing

A key term often mentioned in discussions about monetary policy is the “soft landing.” This refers to the Fed’s goal of slowing down the economy just enough to control inflation without triggering a recession. Achieving a soft landing is challenging because it requires precise adjustments to interest rates and other monetary tools. The recent rate cut is part of this delicate balancing act. By easing borrowing costs, the Fed hopes to support economic growth while keeping inflation in check.

Monetary Policy

Monetary policy involves managing the supply of money and interest rates to influence economic activity. The Fed uses tools like interest rate adjustments to achieve its dual mandate of maximum employment and stable prices. The recent rate cut is a clear example of expansionary monetary policy, where the central bank lowers interest rates to encourage borrowing and investment.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a critical measure of inflation, tracking changes in the prices of a basket of goods and services over time. Recent data showed that inflation has cooled to 2.5% annually, close to the Fed’s target of 2%. This progress on inflation gave the Fed more confidence to cut rates. However, the central bank remains vigilant, as inflationary pressures can resurface, especially if economic activity picks up too quickly.

Employment

Employment is another crucial factor in the Fed’s decision-making process. The labor market has shown signs of softening, with slower job creation and rising unemployment claims. By cutting rates, the Fed aims to make borrowing cheaper for businesses, encouraging them to invest and hire more workers. This move is intended to support job growth and prevent a significant rise in unemployment.

Impact on Stocks

The stock market often reacts positively to interest rate cuts, as lower borrowing costs can boost corporate profits and economic activity. Here’s how the recent rate cut might affect different sectors:

  1. Technology and Growth Stocks : These stocks tend to benefit the most from lower interest rates. Companies in these sectors often rely on borrowing to finance their growth, and cheaper credit can enhance their profitability and expansion plans.
  2. Financials : Banks and financial institutions might see mixed effects. While lower rates can reduce the interest income they earn from loans, increased economic activity can lead to higher loan demand, potentially offsetting the impact.
  3. Consumer Discretionary : Lower interest rates can boost consumer spending on non-essential goods and services. This sector includes companies in retail, travel, and entertainment, which may see increased demand as borrowing costs decrease.
  4. Real Estate : The real estate sector often benefits from lower interest rates, as cheaper mortgages can stimulate home buying and real estate investments.
  5. Utilities and Defensive Stocks : These stocks are typically less sensitive to interest rate changes. However, they might still see some positive effects as lower rates can reduce their borrowing costs.

Risks and Considerations

While the rate cut aims to support economic growth, there are risks to consider. If the economy overheats, inflation could rise again, forcing the Fed to reverse course and hike rates. Additionally, prolonged low rates can lead to asset bubbles, as investors seek higher returns in riskier assets.

Conclusion

The Fed’s decision to cut interest rates by 0.50 percentage points reflects its commitment to supporting economic growth while keeping inflation in check. By aiming for a soft landing, the central bank hopes to navigate the delicate balance between stimulating the economy and preventing runaway inflation. 

As always, please do not hesitate to reach out to discuss the markets and your portfolios.

 

Market Pulse: “Shutdown Jitters, Gold Glitters, Oil Slips”

October 1, 2025
Markets are navigating a new U.S. government shutdown, softer recent labor signals, and sliding oil while investors keep one eye on the Fed’s path after its September meeting. Equities are mixed but near highs, leadership remains tilted toward technology with improving breadth, and defensive assets like gold are seeing renewed demand. What moved today (Oct 1) : After notching strong September and Q3 gains yesterday, with the S&P 500 up about 0.4 percent on September 30 and the Dow setting another record close, U.S. stocks were choppy this morning as the shutdown began. The Nasdaq and Dow traded slightly higher intraday while the S&P hovered near flat. Overseas, the FTSE 100 hit a record as healthcare shares rallied. Gold pushed to fresh records as investors hedged against policy and data uncertainty. Current events to watch: U.S. government shutdown: With funding lapsed, key economic releases may be delayed, including Friday’s jobs report. This muddies near-term visibility for the Fed and markets. Furloughs and suspended data flows could weigh on growth in the fourth quarter if the shutdown lasts. The Fed’s recent guidance: At the September 17 meeting, the Fed’s projections suggested a lower policy path into 2026 as inflation cools, keeping the possibility of additional rate cuts alive. August PCE inflation printed at 2.7 percent year-over-year, reinforcing a gradual disinflation trend heading into the final quarter of the year. Commodities reset: Crude oil has retreated into the low $60s (WTI) on talk of potential OPEC+ supply increases and a softer global manufacturing pulse. The EIA’s outlook anticipates further price softness as inventories build into early 2026, which could provide relief for consumers and businesses. Sectors and standouts: Technology and growth: The third-quarter rally was led by large technology companies, but participation broadened across more sectors, which is healthy for the durability of the uptrend. Elevated valuations mean earnings delivery remains critical in October. Defensives and healthcare: In Europe, healthcare leadership helped drive record U.K. index levels today. In the U.S., defensive sectors have provided ballast on volatile days as bond yields eased. Energy: Lower oil prices have weighed on energy shares but should ease input costs for transportation, consumer, and industrial companies if sustained. Why this is happening: Markets are balancing two forces. On one side is a soft-landing narrative with cooling inflation, prospects for additional Fed cuts, and resilient corporate earnings. On the other side is event risk from the government shutdown, murkier global growth, and shifting oil supply expectations. As long as inflation trends continue to drift lower and policy remains supportive, dips have been bought, but when data flow is disrupted, headlines can dominate. What it could mean next: Volatility watch: With fewer data releases if reports are delayed, markets may be more sensitive to headlines. Credit spreads and market breadth are worth watching since deterioration there would be an early warning sign. Rates and policy: Fed commentary and any clarity on funding negotiations may set the tone. Markets currently lean toward additional easing by year-end, and confirmation or pushback from officials can move both equities and rate-sensitive sectors. Oil and inflation: If crude remains subdued, disinflation into year-end is supported, which is constructive for risk assets as long as growth holds up. Bottom line : Despite today’s wobble, the overall trend remains constructive but sensitive to headlines. A diversified approach, focus on quality balance sheets, and disciplined rebalancing remain prudent as we enter a period where policy developments may matter more than usual data. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to “Wealth Management for Life,” providing enduring guidance for you and your family’s financial success.

Fed Makes First Cut—Markets React with Hope and Caution

September 17, 2025
The big news today: the Federal Reserve cut interest rates by 25 basis points , lowering the federal funds target range to 4.00%–4.25% . This is the first rate cut since 2023, and it marks what could be the beginning of a new easing cycle. Chair Powell acknowledged that the labor market is showing signs of strain —job growth has slowed, unemployment has edged higher—while inflation, though still above target, has been gradually moderating. One member of the committee even pushed for a larger 50-point cut, underscoring the growing concern about keeping the economy on stable footing. Markets largely anticipated this move, and that helped set the tone for the week. The S&P 500 and Nasdaq hit new record highs earlier in the week , reflecting investor optimism that lower rates will support growth. Small-cap stocks also enjoyed a bounce, showing that confidence wasn’t limited to the mega-cap names. At the same time, Treasury yields fell toward 4% before inching back up, a sign that bond investors are weighing both the near-term relief of rate cuts and the longer-term risk that inflation remains sticky. Economic data released this week helped frame the Fed’s decision. August inflation readings came in a touch hotter than expected , with headline CPI up 2.9% year over year and core inflation at 3.1%. Those numbers are still above the Fed’s target, but not high enough to derail its decision to pivot toward easing. Meanwhile, energy prices moved higher on global supply concerns, giving the energy sector a lift, while technology—especially companies tied to AI—continued to outperform. Beyond the numbers, politics are adding a layer of uncertainty. Recent controversies around Fed appointments and legal challenges to sitting governors have raised questions about the central bank’s independence. Markets are watching closely to see whether these distractions influence policy direction. Globally, other central banks, including Canada’s, have also begun shifting to more accommodative stances, reinforcing the sense that the next phase of policy is easing across major economies. So what does this mean looking ahead? Markets could see more upside in the short run , especially in interest-rate sensitive areas like housing and consumer spending. But investors should also prepare for continued volatility —each new jobs or inflation report has the potential to swing sentiment quickly. If inflation proves stickier than hoped, long-term Treasury yields could rise even as short-term rates fall, a dynamic that might pressure parts of the financial sector. In short, the path ahead is unlikely to be smooth, but the Fed has signaled it is prepared to act again, with two additional cuts projected before year-end. Bottom line : The Fed has taken its first step toward easing, reflecting concerns about growth while balancing persistent inflation risks. Markets are encouraged, but optimism remains cautious as investors adjust to a more complex mix of risks and opportunities. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.

What’s Happening in the Market—and What It Means for You

September 4, 2025
The market’s summer calm may be giving way to a more dynamic period. In the weeks ahead, jobs data, inflation reports, tariff developments, and Federal Reserve policy decisions will dominate the investment landscape. With the S&P 500 now more than 90 days removed from a 2% decline—the longest such run since mid-2024—the stage is set for renewed volatility. September has historically been the market’s weakest month, averaging a 0.7% decline over the past 30 years. Four of the last five Septembers ended lower. A correction of 5–10% this fall would not be surprising and could, in fact, set the stage for a stronger year-end rally. Key drivers include: Federal Reserve policy — easing inflation may open the door to rate cuts, while strong job growth could delay them. Volatility Index (VIX) — at unusually low levels, suggesting complacency and the potential for sharper reactions to new developments. Triple witching expirations — adding short-term trading pressure this September. Despite these factors, the macro environment remains supportive. Earnings resilience, healthy economic growth, and investor confidence underpin the outlook. Elevated valuations are best understood as a reflection of optimism about future earnings, particularly in sectors leading innovation. Our perspective: We expect choppier markets in the near term, but remain constructive on equities for year-end. We continue to focus on portfolio resilience, opportunistic rebalancing, and selective positioning in areas where growth prospects justify higher valuations. For investors, discipline and perspective are essential. Volatility is not an enemy—it is an inevitable part of capital markets and often a source of opportunity. At times like these, it’s important to remember that markets move in cycles—but your goals remain constant. Our role is to help you stay focused, avoid distractions, and make thoughtful adjustments as opportunities and risks arise. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.